Collecting Against Spendthrifts in Bankruptcy, Judgment Collection

by Timothy M. Kowal, Esq.

In our February newsletter, we noted the California Supreme Court was reviewing whether the ambiguous spendthrift protections of Probate Code sections 15300-15309 meant to impose an absolute cap of 25% against creditors. The Court has answered: "no."

In its recent decision, styled Carmack v. Reynolds, the Court "hold[s] that the Probate Code does not impose such an absolute limit on a general creditor's access to the trust." Instead, "a general creditor may reach a sum up to the full amount of any distributions that are currently due and payable . . . . and separately may reach a sum up to 25 percent of any payments that are anticipated to be made to the beneficiary" in the future. The Court provides a helpful hypothetical near the end of its opinion to illustrate how its somewhat complicated holding might apply.

It's an interesting opinion that concludes the legislature probably made an oversight in drafting the statutes, which gave rise to the confusion.